August 29, 2013

The Supreme Court’s
recent decision relative to the determination that the Defense of Marriage Act
was unconstitutional leaves many to believe that planning for all individuals
will now be the same. This is not true. Each situation needs to be reviewed to
determine the best plan and approach for each individual/couple.

There are still many
people who are living together and do not wish to marry, and many people, (heterosexuals
as well as gays) are inquiring as to whether they should get married or merely
live together. There are lots of decisions that have to be made, including those
regarding health, insurance, income and estate taxes, family relations, social
security benefits, etc.

Income tax is one of the
major issues that has to be reviewed for each person individually and as it relates
to both as a marital couple. Normally, an accountant will be engaged to work
out and estimate the projected income tax cost if the couple gets married or
remains single. This mathematical formula can display a significant change in
taxes due, especially when one person makes a significant amount of money and
the other does not. Sometimes the net benefit is substantial, and other times,
it is a detriment to have two people earn more money, and then be placed in a
higher income tax bracket, where itemized deductions are limited and the
Medicare surtax may be imposed. While there is no right or wrong decision, tax
is an important consideration when deciding whether or not to marry.

Likewise, the issue of
estate taxes needs to be reviewed, not only for federal purposes, but also for
the state. As the federal exemption between spouses is unlimited, it may not be
so much of an issue on the first death, but on the second death, the surviving
spouse has an exemption of $5.25 million dollars, which could trigger an estate
tax. However, at the current time, the process of utilizing portability is
available, where the first spouse’s exemption of $5.25 million (as indexed for
inflation) may be made available to the surviving spouse if the first spouse’s
estate filed a timely return with the IRS claiming portability.

In addition, a state’s
law relative to estate taxation may be a consideration if the state recognizes
same sex marriages, since if a couple is not married and there is a tax due on
the first death, it may be preferable to eliminate the tax with the use of the
unlimited marital deduction, which does not apply to cohabitants.

If the couple has
already married, and had filed separate income tax returns, it may be
beneficial to amend those returns, going back three years, to receive a refund.
Even if the state does not permit a same sex marriage at this time, it may be
preferable to file the federal return as an amended return and also file the
state return, so that if and when a state may legalize same sex marriages, the
statute of limitations will not be lost.

Additional questions relative
to the effect of the new law on tax issues follow:

Does
the couple have a marriage that is deemed to be legal for federal purposes?

Does
the state currently allow the same sex marriage, and if not, would the couple
consider moving to a state that allowed the same sex couple to marry?

What
are the federal income tax obligations, and do they increase or decrease as a
married couple or remaining single?

Should
federal and state returns be amended, and is there a risk in doing so?

What
other employee benefits are available or mandated to be available for a same
sex spouse?

What
changes should be made to estate plans, including health proxy, power of
attorney, wills, trusts, etc.?

Should
the couple consider a pre-nuptial agreement in the event that the marriage does
not work?

Again, there is no right
or wrong as to what a person should do in these situations, but at least there
are choices to be made at this time that did not exist previously. With the advent
of legalization of marriage for federal purposes, individuals must review their
plans to determine how their lives will be affected legally, emotionally, and
otherwise.